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Dassault face tough road to close India fighter contract

India's decision to choose France's Dassault Aviation firm to supply 126 fighters is just the start of a long path strewn with red tape, analysts say, as India will likely insist on participation from its defence industry.

AFP - India's selection of Dassault Aviation as the preferred bidder for a huge fighter jet deal marks just the start of a long and arduous process for the French firm to secure a final contract, analysts say.

Dassault won the right to enter exclusive negotiations with India to supply 126 fighters after lodging a lower bid than its rival Eurofighter for a tender with an estimated value of 12 billion dollars.

But analysts say Dassault's initial euphoria at the selection of its Rafale fighter will soon be tempered by the realities of what lies ahead before the deal can be signed and sealed.

"Negotiations for industrial cooperation remain, and these will likely be difficult. India is very demanding in terms of the level of participation it expects for local industry," said Endre Lunde, a defence expert with Jane's Defence Weekly.

The contract for the medium multi-role combat jets comes with a 50 percent offset clause, meaning Dassault must source half the total value of the deal from the Indian defence industry.

India enshrined the offset clause as policy for all major defence deals in 2003 -- a move largely aimed at gaining expertise in advanced defence-related technologies.

The pledge of significant technology transfers was a key part of the Dassault bid -- a fact underlined by French President Nicolas Sarkozy on Thursday after news of the Rafale's victory broke.

"The negotiation of the contract will begin very soon with the full support of French authorities. It will include major transfers of technology guaranteed by the French state," Sarkozy said.

Turning such pledges into a mutually acceptable agreement will not necessarily be easy.

The tendered contract is for the outright purchase of 18 combat aircraft by 2012 with another 108 to be built in India with options to acquire more.

"The devil, as always, will in working out the details," said Lunde. "The ambition has to become a reality, and some companies have found this very tricky with India in the past."

Indian defence procurement has traditionally been an opaque business, marred by postponements and repeated re-negotiations over cost.

The tender for the 126 multi-role combat aircraft already has a history of delays.

Originally slated for 2005, the procurement process was only cleared in 2007 and flight evaluations of the initial six proposals did not begin until two years later.

And Dassault's record in exporting the Rafale is a troubled one. It has come close to selling the aircraft to Brazil and Switzerland, but failed to secure a contract.

The United Arab Emirates was reportedly in final negotiations to buy 60 Rafale when, in June last year, it invited the European consortium behind the Eurofighter Typhoon to submit a counter-offer, saying Dassault's terms were "uncompetitive and unworkable."

French Defence Minister Gerard Longuet warned in December that Rafale production would be halted if none of the jets could be sold abroad, a threat that only ups the ante in negotiating a successful contract with India.

"It's really do-or-die for Dassault, and that gives India leverage to drive a hard bargain," said retired Indian air marshal Kapil Kak, director of a New Delhi-based military aviation think-tank.

Kak pointed out that France would have its eye on prizes that extend beyond the Rafale contract to a series of multi-billion dollar defence deals India is expected to offer over the next five years.

And as the discussions on the Rafale deal proceed, Eurofighter is likely to remain a conspicuous offstage presence, ready to jump in at the first sign of trouble.

In a brief statement on Thursday, Eurofighter voiced its disappointment at not being selected but also noted that the deal with Dassault "is not yet a contract signature and contract negotiations are still ahead."

Retired major-general Mrinal Suman, a military procurement expert and advisor, said that while the negotiations might be tough, the political will on both sides to secure a deal was enormous.

"India is quite desperate for the equipment and technical transfer, and the trials over the past 4-5 years have been expensive," Suman said, adding that the bidding process for the fighter deal had been "one of the most transparent" in recent memory.

Defence Minister A.K. Antony told reporters this week that any final contract could only be signed after the end of the current fiscal year on March 31.